Annual report 2010 - plazacenters

Financial statements
Notes to the consolidated financial statements
continued
Note 37 – Significant acquisitions and events
Framework agreement for a joint venture in the US
On February 9, 2010 the Company entered through Elbit Plaza USA, L.P. (“Elbit Plaza USA”), a new Real Estate Investment Partnership
with Elbit, into a framework and co-investment agreement with Eastgate Property LLC (“Eastgate”) to take advantage of real estate
opportunities in the US, primarily in the retail sector. Under the terms of the new strategic joint venture, Elbit Plaza USA and Eastgate
have jointly committed to invest a total of USD 200 million in equal shares in one or more dedicated US real estate investment platforms,
which will focus on investments in the US commercial real estate sector (collectively, the “Fund”). The Fund will seek to identify potential
investments and make both direct purchases and enter into joint ventures with local business partners over a two year acquisition
period. Once assets have been acquired, Elbit and the Company will undertake asset management initiatives to maximize income and
capital value growth from the properties.
Pursuant to the framework and co-investment agreement with Eastgate, EPN GP LLC (“EPN”) was jointly established as a Real Estate
Investment Venture for the purpose of investing in the US real estate market, primarily in the retail sector. For the transaction in the US
refer to Investment in US Real Estate market section below.
In June 2010 Elbit Plaza USA and Eastgate have raised from Menora Mivtachim Insurance Ltd. (“Menora”), a leading pension insurance
entity in Israel, and certain of Menora’s affiliates, USD 31 million (EUR 25 million) of capital commitments to be invested in EPN.
Following this commitment, the Company indirect interests in EPN were reduced from 25% to 21.65%.
Investment in US real estate market
During the period from April through June 2010 the Company entered, through its jointly controlled entity, EPN, into a Series of
agreements (which are described below) for the purpose of acquiring the controlling interests in Macquarie DDR Trust (“EDT” or the
“Trust”). EDT is an Australian publicly traded trust (ASX:EDT.AX), which holds and manages as of December 31, 2010 two US REIT
portfolios of 48 retail properties. The properties have approximately 10.9 million ft 2 of lettable area of mainly community shopping
centers across 20 states in the US. Pursuant to these agreements, on June 18, 2010 EPN acquired 47.8% of the unitholdings in the trust.
In addition, EPN acquired a 50% interest in the entity which is the owner of the Responsible Entity of the Trust (the “US Manager”) for
approximately USD 3 million. The Responsible Entity is the company who looks after the day-to-day management of EDT, including its
investments, strategy management and financing. Developers, Diversified Realty Corporation, an Ohio corporation specializing in real
estate investments and assets management (“DDR”), will remain as a 50% co-owner of the US Manager and continue to act as property
manager of the Trust’s assets. Pursuant to the agreements EPN has the right to appoint six board members out of
11 (55%) of the Responsible Entity’s board of directors while according to Responsible Entity constitution few decision required at least
seven affirmative votes including the unanimous vote of all Non-Independent Directors. The Company’s management is in the opinion,
based on its best judgment, that those decisions do not affect the Company’s ability to control the Responsible Entity.
Consequently, together with its 47.8% holding in the Trust and due to the fact that the Responsible Entity can be appointed or dismissed
only by major vote of EDT general meeting which EPN is the largest unit holder while the rest of the unit holders are in very large
distribution the Company management is of the opinion that EPN has de facto control over EDT, that is the power to govern the financial
and operating policies of EDT. Accordingly, EPN presents its investment in EDT on a fully consolidation basis. Given the joint control
agreement between the Company and EI in Elbit Plaza USA, and between Elbit Plaza USA and Eastgate, the Company presents its
investment in EPN, and therefore indirectly in EDT, on a proportional consolidation basis based on 21.65%.
In the framework of the transaction:
(i)
EPN acquired a unit holding representing 15% of the Trust’s units, pre-placement, through a 9.5 million Australian Dollar
(“AUD”) (EUR 6.6 million) private placement (the “Placement”);
(ii) EPN acquired from Macquarie Group Limited (“Macquarie”) its 2.6% principal unit holding in the Trust for AUD 1.7 million
(EUR 1.2 million);
(iii) Subsequently, EPN participated in and sub-underwrite a proposed recapitalization of EDT to raise approximately AUD 200 million
(EUR 139 million) (“Recapitalization”). The Recapitalization was undertaken by way of a pro rata entitlement offer (“Entitlement
Offer”). Following the completion of the Entitlement Offer EPN became a 47.8% holder of the Trust’s units, and by that becoming
the largest unit holder of the Trust.
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Plaza Centers N.V. Annual report 2010